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Maybe this used to happen earlier, but I only really saw this after the DotCom bust. In my case it was founders/execs issuing themselves new/preferred stock and
by kurthr 8y ago
Maybe this used to happen earlier, but I only really saw this after the DotCom bust. In my case it was founders/execs issuing themselves new/preferred stock and diluting all their coworkers into oblivion on an exit.
Granted, these were small shops ~30 people and the exits were small ~$100M, but the effects were devastating. Everyone who could quit, did. People for whom an extra few $100k would have been a big deal would throw drinks at founders in a bar. The code became an unmaintainable worthless mess and they basically failed to live up to the value they existed at.
Why would someone give the founders such a deal? If they don't care about their employees to share 10%, they probably don't care about even medium term success.
- oh_hello 8y agoI lived through an experience very similar to this. The little people got peanuts. Two things really burned me. One was exactly the point you made, with such a small team it would haven't been much to make the payout go from pathetic to meaningful for the peons who put years into the company. Second the sale contract specified employees would continue to receive similar salaries. So our salaries did not change, options that took years to vest were cashed in for little money, and the company suddenly had plenty of extra money to go on a hiring streak.
- sytelus 8y agoCould you/should you ask founders if they have such unilateral dilution powers? How do you check for this when joining a startup? Should this be explicitly written in the offer letter you get?
- kurthr 8y agoIn general a majority stock holder(s) can rewrite the rules any way they like. You could have a poison pill written into your offer letter (requiring an immediate payout for certain events), but I don't think any founder/VC would sign it. But I AM NOT A LAWYER.